VEON Ltd (VEON) 2008 Q1 法說會逐字稿

Good day, everyone and welcome to this VimpelCom conference call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Michael Polyviou. Please go ahead, sir.

Good morning and good evening, and welcome to VimpelCom's conference call to discuss the Company's first quarter 2008 financial and operating results.

Before getting started, I would like to remind everyone that, except for historical information, statements made on this conference call may constitute forward-looking statements that involve certain risks and uncertainties.

These statements relate, in part, to the Company strategy and development plans, the anticipated benefits of the Golden Telecom acquisition, market growth and the competitive environment in Russia and the CIS, Broadband Internet development in Russia and projections relating to the Company's capital expenditures.

Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including the risks detailed in the Company's Press Release announcing first quarter 2008 financial and operating results, the Company's earnings presentation entitled 'Presentation of 1Q 2008 Financial and Operating Results', the Company's Annual Report 20F for the year ended December 31, 2007, and other public filings made by the Company with the United Stated Securities and Exchange Commission, each of which are posted on the Company's website at www.vimpelcom.com.

In addition, the Company's first quarter 2008 financial and operating results Press Release and form 20F are posted on the Securities and Exchange Commission's website at www.sec.gov.

VimpelCom disclaims any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward-looking statements made on this conference call, or to make corrections to reflect future events or developments.

If you have not received a copy of the first quarter 2008 financial and operating results Press Release, please contract FD at 212 850 5600 and it will be forwarded to you. In addition, the Press Release and the earnings presentation, each of which includes reconciliation of non-GAAP financial measures presented on this conference call, can be downloaded from the VimpelCom site.

At this time, I would like to turn the call over to Alexander Izosimov, Chief Executive Officer of Vimpel Communications.

Thank you and, hello, everyone. Thank you for joining our conference call today. Let me introduce the team participating on this call.

Here with me, as usual, are Elena Shmatova, our Chief Financial Officer; Nikolay Pryanishnikov, our Executive Vice President who is in charge of operations in Russia; Kent McNeley, our Chief Marketing Officer; Jean-Pierre Vandromme, Executive Vice President of Network Resource Management and the CEO of Golden Telecom, and Alexander Boreyko, our Director of International and Investor Relations.

Today's presentation will start with a general overview of our performance in the first quarter of 2008. After that we will review in more detail Russia and discuss highlights from other markets where we are operate. And at the end of the presentation we'll touch upon our integration with Golden Telecom as part of the implementation of our strategy.

Our overall performance in the first quarter of 2008 was strong with an OIBDA margin above 50% and year-on-year revenue growth above 40%. It is notable that this happened in spite of the negative impact caused by economic problems in central Asia and, particularly, in Kazakhstan.

[Some] financial figures became a good backdrop for the acquisition of Golden Telecom which, I believe, was an historic deal. Golden Telecom adds a new dimension to our business. It makes us an integrated operator which is able to provide its customers a broad variety of the most modern telecommunication services.

The combined entity will help to ensure our future growth and value creation for our shareholders. Later in the presentation we'll discuss the six steps we're taking in this direction. But, before that, let me turn the floor over to Elena who will present a detailed account of our quarterly financial results.

Thank you, Alexander. The big news in our first quarter financials is, of course, the acquisition of Golden Telecom. This transaction significantly expanded the scope of our business and, to reflect this, we changed our reporting structure starting from the first quarter of this year.

Going forward, we will presenting our results for two geographic segments; Russia and the other countries of the CIS where we operate, and two business segments, Fixed and Mobile.

At consolidated level, our first quarter revenue increased more than 40% year on year and close to 5% quarter on quarter. This includes $133m of Golden Telecom revenue, net of $7m revenue for services rendered to VimpelCom.

OIBDA margin showed strong dynamics in spite of the one month impact of lower margin Fixed business. [It was] supported by very strong results in our Mobile segment and partial reversal of stock option accrual following fluctuations in our stock price.

In the first quarter we reversed approximately $43m in connection with employee stock-based compensation programs. These fluctuations make comparison of OIBDA and OIBDA margin between periods more complicated. By taking out the effect of stock option accounting, our consolidated OIBDA margin for the first margin would have been above 50%. This [means] that our business remains in a good shape.

Our balance sheet at the end of the first quarter also changed substantially with the Golden Telecom acquisition. Mainly due to this transaction, our total assets increased by more than 50% and our total debt increased by more than 2.4 times.

Also, our liquidity ratio changed substantially with debt to OIBDA ratio equal to 1.7 compared to 0.8 in the previous quarter. However, this is still below 2.0; our self-imposed ceiling for this ratio.

It is also important to mention that our debt is structurally sound. We funded our acquisition of Golden Telecom with a $3.5b syndicated loan, including $1.5b of a 12-month bridge facility. In May, the bridge was refinanced by a $2b bond placement, with one half maturing in five years and another half in 10 years.

Our cash generation continues to increase in line with our business growth. [The [past] 12-month basis at the end of first quarter our free cash flow before acquisitions was already above $1.4b; an increase of 12% as compared with the end of 2007.

[I'll pass to] Alexander to discuss in more detail our activities by segment and product line.

Thank you, Elena. Reviewing our sources of growth in the past, we distinguished between Russia and the other countries of the CIS. Now, as we already mentioned, with the acquisition of Golden Telecom our business has gained another dimension, further enhancing our growth capabilities.

Accordingly, we will now analyze our growth both by segments and product lines, Mobile and Fixed. Naturally, Russian Mobile, our historical core business, remains our largest component. At the same time, our CIS operations have been gaining momentum.

At the end of the first quarter of 2008, our business in the CIS generated about 15% of our total revenue. Our Fixed line business will become a strong additional growth driver. However, as we consolidate the Fixed Line business of Golden Telecom for just one month in the first quarter of 2008, we will begin to see the full effect of the Golden Telecom consolidation from the second quarter.

Let's now move to specific markets starting, as usual, with Russia. On a consolidated level our performance was strong with solid revenue growth and record-breaking OIBDA numbers. This was largely driven by the developments in the Mobile segment.

Our CapEx to revenue ratio stabilized in the past three quarters at a 17% to 18% level, which is in the middle of the targeted corridor of 15% to 20%. Going forward, we may temporarily go somewhat above this corridor, primarily due to the forthcoming full-scale development of our 3G network.

Moving now to the Russian Mobile segment, we see that our reported first quarter Mobile OIBDA margin in Russia was 57%. If we exclude the non-cash effect of reversals of stock option accruals, our Mobile OIBDA margin in the first quarter would still be approximately 55%. Strong OIBDA margin in the first quarter resulted from our focus on margin preservation.

We did this for two reasons. First, the need to compensate for the downward pressure on our margins caused by absorption of the lower margin business of Golden Telecom. Second, the desire to maximize our cash flow in view of our debt related to the Golden Telecom acquisition.

In the first quarter we controlled our margins by restricting marketing expenses and maintaining stable pricing. This, coupled with traditional weak seasonality, resulted in a slight sequential decline in our ARPU and revenues in the Russian Mobile segment.

Of course, the decline in Mobile revenues was more than compensated by the addition of Fixed line revenues in March. Now that we have successfully completed the initial stage of the Golden Telecom integration, we feel more comfortable to step up marketing pressure in order to defend our Mobile revenue market share. At the same, we intend to continue with our measured pricing policy.

In the first quarter we consolidated only one month of Golden Telecom's operations. For the full first quarter the revenue of Golden Telecom was 61% higher than a year ago. This is a healthy business, with very good growth in all business lines. For the same period, revenue of the Business segment increased by 45%, the Wholesale segment grew by 60% and the Residential segment by 300%.

The OIBDA margin of the Russian Fixed operations for March 2008 was around 25%. Lower margins of Fixed Line business will have a dilutive effect on the Group OIBDA margin. We intend to partially compensate for this effect by extracting cost synergies, especially on the network development side and by accelerating the development of higher margin broadband services.

Currently, penetration of Broadband Internet in Russia is just over 10%. It is expected to grow to 36% by 2012 but, even in 2012, almost half of PC users will still not have a Broadband connection, which shows unsatisfied demand for such services.

We expect Broadband Internet to be one of the fastest growing segments in the Russian telecom market, and we are positioning VimpelCom to be the major beneficiary of this growth. We are going to do our best to capture this growth.

We plan to re-brand Golden Telecom services under the Beeline name. With the help of VimpelCom marketing machine, we hope to push a Fiber To The Building take-up on the Russian market and substantially increase our presence in the regions. Our combined infrastructure should help to accelerate this process as well.

The Broadband business in Russia is developing very rapidly, with FTTB being the primary part of this business. Our revenues from Broadband Access services increased during the first quarter of 2008 by 242% to $24m. The number of our Broadband subscribers increased by 190%, reaching 530,000 by the end of the first quarter of 2008.

As of June 1, 2008 our FTTB network has already passed 4.5m households. Currently, we provide Broadband services in 22 cities. Originally, Golden Telecom planned to build a network in 65 Russian cities by 2012. With the consolidation, we plan to accelerate and expand the FTTB development even further. This should put us in a very strong position in the Russian telecom market.

Moving now to the CIS countries, we see that Kazakhstan remains our largest market outside of Russia. It is the largest contributor to our business, accounting for half of revenues and 60% of our OIBDA in the CIS. However, we are also pleased to see that many other markets have reached a meaningful size and all of them are OIBDA positive except Georgia, our newest market. Let's now look at some of the major markets in more detail.

In Kazakhstan, in the first quarter of 2008, we observed continued subscriber growth; 4% on a quarter-on-quarter basis and a robust OIBDA margin of over 50%. At the same time, our operations were adversely affected by the economic problems which hit Kazakhstan in recent months. Liquidity crisis led to a spike in unemployment and a decrease in the disposable income level. The difficulties in Kazakhstan market are temporary and we believe in the underlying strength of the local economy.

In Ukraine the pricing environment in the Mobile market remains challenging. Despite that, in the first quarter of 2008 we managed to increase our ARPU quarter on quarter by 9% on the back of 15% sequential growth in usage. It suggests that our efforts to improve the quality of our subscriber base are succeeding.

Going forward, the consolidation of the Golden Telecom business, is comparable in size with VimpelCom's operations, will substantially help to strength our position in the Ukrainian telecom market.

In Armenia our turnaround efforts have started to pay off. Our sales and marketing push resulted in an 18% increase in the number of active subscribers during the first quarter. We recently introduced our Beeline brand in the Armenian market and further intensified marketing activities, which will help to sustain the momentum. Our focus in Armenia will remain on building market share and expanding Fixed Mobile convergence opportunities.

As far as most -- the other markets are concerned, they demonstrate very good dynamics, which you can see in the attachments to our presentation materials.

Now, a few words about our strategy. The strategy outlines long-term commitments of the Company. It sets forth basic directions and defines our path to progress because everything we do stems from our strategy. The acquisition of Golden Telecom was a logical step in realizing this. It opens new areas of growth, with Broadband as a key element.

Now, three months after the completion of the Golden Telecom transaction, we can report that integration is going according to our plans and we have already made good progress. We have already optimized traffic routing and centralized procurement. We have Foreign, Corporate and Mass market sales teams on the basis of sales forces of both companies, large Corporate databases for VimpelCom and Golden Telecom and already have some cross sales.

Jean-Pierre Vandromme, the CEO of Golden Telecom, is at the heart of this process and his involvement has been key to a rapid and smooth integration. Jean-Pierre also assumed the additional responsibility for managing the network of the combined Company.

So, in conclusion, I believe we had a very good first quarter. With an OIBDA margin above 50% and revenue growth rates above 40%, VimpelCom remains a rare example of a large, fast growing and highly profitable business. The underlying strengths of our core business, coupled with new opportunities of an integrated player, will provide a robust platform for our future growth.

With this, thank you for your attention and now let me open the floor for questions.

Certainly, (OPERATOR INSTRUCTIONS). And we'll go first to Herve Drouet with HSBC.

Good afternoon. My first question is regarding Kazakhstan and Uzbekistan. You mentioned in Kazakhstan you are currently experiencing some temporary economic problems. Can you tell us a bit more about how long you think those economic problems may last and may be reflected in weaker ARPU than what could have been expected before? And something for Uzbekistan?

And my second question is regarding synergies. Is it possible to give an update on the synergies, now you have started the integrations? You mentioned initially synergies in the region of $400m in terms of NPV value on the network. Could you give us any additional guidance, maybe on cross-selling or other operational synergies? Thank you.

All right. Let me start with Kazakhstan. The economic problems are not ours per se. The whole market is down, and I will just illustrate with a few examples.

Tobacco companies run the research and that research indicated that 700,000 of guest workers have left the country in the recent months. And this is compared to a 15m population; you can see how big the exodus is. We polled 1,500 companies, actually, and 90% of them said that they stopped services due to either laying off staff or experiencing economic problems.

I recently visited Astana, and Astana used to be a buzzing construction site and you see cranes there all over the place; all of them were idol. So if you look at the overall situation there, the banks basically got overextended and, therefore, the liquidity squeeze hit them hardest and it's been pretty hard lending for the economy.

It's hard for us to say how long it will continue and whether we see or not a necessity to go deeper on our ARPU and price cuts in order to stimulate people to stay on line and keep on talking. We hope that actually the underlying strength of the economy is there and Kazakhstan is going to increase dramatically its oil production and, of course, that's supposed to trickle back in. But to say exactly the timing of this would be difficult [within this region].

Yes. Would you say it's a matter of quarters or longer than a few quarters?

It's really -- I'm not a macroeconomist and it would be very difficult for me to give you exact gauging on this one. If you look at the rest of the region, of the Central Asia, their nature of their problems was somewhat different. It was mainly related to very severe weather conditions during the winter which led to power outages and food supply interruptions and so on. In many cases, actually, UN considers Tajikistan being on the verge of humanitarian crisis.

Hence, we need to go through the summer, I believe, before it comes more or less back to normal, as they actually depend quite a bit on hydropower, so, bringing back water into a running condition might help actually to improve the electricity supplies there. Hence, we need to wait and see, basically, what's happening in those markets.

Okay.

And as far as synergies are concerned, I would ask Jean-Pierre to give us some light.

It's very difficult to pin a number on it. But if we go over the synergies, they really fall out into five big categories. The first one was procurement. The integration of the two procurement teams is completely done so every single tender, whether it's VimpelCom or former Golden, all goes through the same [e-tender] process and vendors are all treated as if it is one company which it is, of course. So, there, the work is done so, whatever we had foreseen to come up with that $400m number to end up with savings this year, we're a couple of months ahead of schedule.

The second one was the routings of traffic away from other network providers to the Golden Telecom network. For International traffic that is, today, all done, so, 100% of the International traffic already runs over the former Golden network. As far as Russian long distance or Ukrainian long distance traffic is done, that's terminated or finished for 80%. The reason for that being that the network of Golden itself has to be beefed up. We expect as the weeks go by that in the next month or two that that is going to be, probably not 100%, but 95% the case.

The next component was network. The construction of long distance cables, the network is now being planned as one network already. There are a number of long distance cables that Golden was planning to construct that have been canceled because VimpelCom already had cables on these routes.

As far as the [core links] in different cities was concerned that were planned by VimpelCom to connect its 3G network and base stations, all of these have been integrated in the FTTB construction plans of Golden, and that's also one network already. So that's on the cost savings part.

As far as cross-sales is concerned, we have vetted the customer bases of both companies to see where the overlaps are. We now know where the cross-selling opportunities are. The sales forces are being cross-trained and, in the B2B segment, cross-sales has started. But before we see the real results of that will probably be Q4 of this year, because sales cycles in the B2B segment are, by definition, low.

As far as B2C is concerned, we expect cross-sales of the FTTB services into the Beeline customer base to start somewhere either [end of] Q3 or beginning of Q4.

So that's kind of the list. Overall, I would say that we are definitely not behind our own fairly aggressive plans.

And if I can make one addition to this, which is anticipating the further questions around this, how much? And the answer to that is that actually it doesn't matter because the most important thing that we intend was capturing this and plus other efficiency measures to bring our integrated margins to high 40s in the space of 18 to 24 months. Hence, we're saying that absorbing all of Golden's volume will bring it to roughly the same level of margins as we had before.

And we'll go ahead and take our next question from Sergei Arsenyev with Goldman Sachs.

Hi, good afternoon. Actually, this was my question about the margins, but I was actually wondering if you could talk a little bit about the Mobile margin specifically?

You used to say that your target Mobile margin is in the range of 45% go 50% and if it goes significantly beyond that it attracts competitors and the regulators. You're, right now, at close to -- or in the first quarter you were at 55%. Does this worry you?

Do you think that this will attract the regulators and then competitors, and will you manage the margin down purely in the mobile segment and buy some revenue growth with the decrease of this margin in the remaining quarters of this year?

And the follow-up question for Jean-Pierre is whether he can give us the breakdown of the Broadband subscriber base between Moscow and the regions? Thank you.

All right, let me tackle the margin question first. I think it's a question which needs to be taken a bit broader. I know that it's not popular to answer on the Q&A in a long-winding fashion but, nevertheless, I'll use this opportunity.

First, we will be looking upon ourselves as an integrated player and that's a very important shift in our mentality. And when you have this approach, you manage the overall margin and you might want to balance in a different way between the different segments. Because you will have actually increasingly more revenues which will go for the eliminations and more costs which are shared and, then, it becomes a question of allocation, which impacts margin. So we will manage overall margin and that's why I'm saying comfortably that we're targeting high 40s.

Second, when we were talking about targeted level of the margin, we are saying in the mid to long term, right? We were always saying, as well that in any given quarter it can go either up or below a certain corridor. Therefore, I wouldn't take extrapolations coming from just out of one data point, like single quarter and we have these margins and, therefore, that's what you're going to have, because it's not going to be true.

I also would like to put a little bit of color what happened in the first quarter. And I think that in the script which you've heard, when we're talking about the low, just imagine the management feelings when we're going into a $4.5b deal which is the largest in the telecom space in the CIS, and you're going in the midst of financial crisis.

You're going into this deal and you're taking $1.5b short-term loan which you have to refinance reasonably fast, because there are also a lot of covenants attached to that bridge facility which would restrict us what we can do. And, hence, given all this, we were very, very cautious what we can afford to do and what we'd be willing to do in the first quarter before we acquire the comfort that we could place that Bond, which we did in May. We placed a $2b Bond and now it's a completely different feeling.

So it's a bit of a very short-term reaction by the management and a conscious or subconscious effort of restraining ourselves on how we behaved on the market, both in terms of pricing and, certainly, in terms of marketing activities and the pressure we exerted there.

Going forward, we're going to bring these margins to a more normal basis but, again, we will be balancing between the two trying to find the optimal combination and certainly not to be a red [letter] for the bull, i.e., disturbing the Regulator with very high numbers. But high 40s I would feel very, very comfortable with.

And paraphrasing your answer, so does this mean that you've stepped up the marketing activity in the second quarter already and you're much more comfortable now with the business overall and with the way the integration is going? You have started spending more and, consequently, presumably we can start expecting an increase in revenues on the back of that -- in the revenue growth rate, rather.

I think that the lead time is a bit longer. So, even if we half increased then we are just ramping up, shall I say, this. Because, again, we completed the Bond placement only in June -- in May, sorry, so we have very little time past between that.

We are ramping it up but the revenue benefit -- of course, we'll see the seasonal affects which are coming through regardless of what we do. And the true competitive move you will see probably towards the end of second quarter and more into the third quarter. So that's how I would read it.

As far as the distribution of the Broadband customers is concerned, I will give you the distribution of the FTTB customers, the Fiber To The Building customers; that's -- 77% is in Moscow, 14% is in St. Petersburg and 5% is in rest of Russia, which follows more or less the trend of the timing that the network has been constructed.

So the oldest network you have most customers, you have most customer penetration, and the youngest networks is the ones where you have the least penetration.

Right, thank you very much.

We will now take our next question from Alex Wright with UBS.

Yes, thank you. I just wanted to follow up on one of Sergei's questions, which is on the timing of the step-up of marketing which you've already answered already.

But just following on from that, can you give us any further detail in how you intend, or how you are, stepping up those marketing campaigns? You've said already that you intend to maintain fairly stable pricing levels, or similar wording to that effect. So could you explain, is it more on the advertising spending, is it dealer incentives, is there some pricing element to it? If you could give us any further color on how you're addressing that, please, that would be great.

We believe that conservative pricing policy is very good for the market and we would like to act according to that. So it will be some price moves, but we don't want to provoke competition and we want this market to be healthy, because we see some clear examples.

So an example is the Ukrainian example when operators who were left to price wars, and the whole market was a bit destroyed. So we don't want this to happen to Russian market.

On the other hand, we would like to step up our marketing pressure by working more actively with the dealers. So we're already having some additional simulation programs with the dealers and with the personnel of the dealers. We are developing new distribution channels in Russia and we're increasing marketing activities.

Thank you very much.

Our next question will come from Dalibor Vavrushka with ING.

Hello, I think I'd like to follow up on the questions that were -- that have been discussed before. Basically, I understand that you slowed down your marketing activities for the reasons that you explain, but I just wanted to ask about the market share targeting.

Because it appears that, obviously, you kept your prices stable, whereas, your main competitor has been decreasing the prices over the last couple of quarters and, hence, you seem to have lost some market share on the revenue side. And now you're saying that basically you're going to invest more in advertising or dealer commissions.

But I wonder, do you think that you can reverse the market share trend that we've seen in the last quarter and the last two quarters by simply doing that or by avoiding the pricing? As it seems from the data that, actually, the players who are reducing the prices are gaining share.

And the second question I may have is on the Fixed Line side of the business. I just wonder -- there can be some major events such as the (inaudible) privatization, some restructuring of the industry. I wonder, just from a very general top-down point of view, how do you see the Broadband market in Russia shaping up? And are some of these events important or relevant for you? And are there any things that you are worried about in terms of what competition might do or what -- how hard the situation might play out? Or what sort of scenarios would be most favorable for your business? Thank you.

I think that when we talk about market share, one has to be very careful. And I am not going to pretend that we know all the answer, or we can precisely predict behavior of the market and flaunt our market share there. To be frank, we were a bit surprised by the jump which has been shown by our competitors, which is contrary to all the historical data. So we are yet to understand what is the true driver there.

However, I think that at the moment we also need to bring into consideration, not only revenue market share, but also EBITDA market share and that's where we need to find a long-standing balance. Because the danger is that when market at the high point of saturation, and we saw it in many markets, if you engage into a market share fight with the diminishing returns, and you start essentially decreasing the value of the whole market, it's certainly what we want to avoid.

And one of the reasons of us increasingly talking about shifting gears or, if you wish, shifting the gun-sights and looking more at Broadband opportunities, is exactly this. My ideal scenario would be to protect the market share on the Mobile space with the minimum possible investment out of the margin and drive very heavily the speed of the penetration on the Broadband and capture market share there. That would be the ideal strategy.

Of course, the life is more complex than that, and one can have ideal scenarios as much as one likes and it will depend a lot on the competitive environment. Anticipating -- following onto the second question, I will ask Jean-Pierre to comment on the evolution of the Broadband market.

So if we look at the evolution of the Broadband market and you look at what analysts are predicting, by 2012, which is in four years from now, two-thirds of the Russian population will have PCs at home; a little bit over half of them will have Broadband. So that means that there is still an unsatisfied demand of nearly a third of the market at that moment. So the upside is huge. The reasons for that, we believe, is that, even by 2012, that there is a fair chance that not everybody will even have the possibility to have Broadband. So I would say that Russian Broadband study is more one of availability than of need.

As far as the competitive environment is concerned, if we look at competition today, more than, or nearly, half of all Broadband -- of existing Broadband customers in Russian Federation takes its services what is called home networks, which were literally thousands and thousands of small companies that in many cases have anywhere from a couple of thousand to maybe 10,000, 15,000 customers.

I believe that, longer term, these smaller companies are going to be either sold or simply disappear, and that in the Broadband space that you're going to end up with a landscape like we have today in the Mobile market, where we have two, three, maybe maximum four large players that dominate the market completely. And we believe that with the program that we have to roll out FTTB networks at the fast pace, combined with the HSDPA rollout, the 3G rollout, that we should be one of the biggest beneficiaries of that up-take. So I don't know whether that answers your question.

Just one addition on that. That invest companies clearly have some big market share in the region, and we believe that we can be very competitive competing with them because we will offer a higher speed. They're right now using DSL technology. And also in terms of customer service and bundled package with cellular phones, cellular services, it will be a very competitive, stronger package on the market.

Let's not forget that once you're outside of Moscow and St. Petersburg, that there is really only two companies that are today in the process of, either building, or offering Broadband services. One is ourselves and the second one is [Vial Invest] company. Other than that, the only providers that we have are very, very small, as I said, very, very small home networks. But there is no nationwide player, other than Beeline. And, if you consider the other investors as one company, we are the best.

Okay, thank you very much.

We'll take our next question from Kay Turner with Citi.

Yes, hello. There were reports in the market about MTS interest in [smarts]. Can you -- would you be interested in this company?

We've been saying that strategically, yes, that strategically consolidation of the Russian operations would make a lot of sense. However, in that particular circumstances -- or, in general, when we talk about a consolidation it's certainly not a must-have asset. And, therefore, it's a matter of price, matter of availability, matter of structure of the transaction and the risks associated with this.

And, in that sense, we are interested, but to some extent. If MTS is willing to pay what price has been reported in the press, I think they will be acquiring the asset. And, frankly speaking, I don't mind that at all. Because anybody over three consolidating the market is good news for the rest. Because that would be just more disciplined behavior and less unpredictability on -- in the regions where smarts operates.

And the other question, if -- (inaudible) at some point and decides to spin off its mobile business, would that also represented interest for you?

Absolutely. One has to understand that actually acquiring a mobile asset, mobile business, where you already have your own operations, it means that you're acquiring revenue. And EBITDA at that point in time becomes less important because you almost overnight, figure of speech, transfer this from the old base into your own cost structure and, therefore, improve EBITDA and create scale. Hence, if (inaudible) for example comes for sale, that's a fantastic asset and, of course, we would be interested in buying it.

And last question. Could you please comment on your investment -- (inaudible) investment in Vietman, just the size and timing?

The size is easy to comment; it's zero at the moment. Timing is more difficult, because that was the only case where we broke our promise to ourselves, never disclose unfinished transaction. But, because it's been politically driven, so we had to disclose it and, hence, now we have to update all the time. We do negotiate, and the negotiation is progressing. So I believe that eventually we, rather likely than less likely, are going to end up with participating in Joint Venture in Vietnam.

However, the process turned out to be lengthy, as expected, and with multiple iterations which are explained by the absence of the regulatory framework. We're essentially being a guinea pig who create a new way of setting up operating Joint Venture in that country. So I cannot unfortunately tell you.

I can tell you that it's probably soon but, on the other hand, I said soon probably when we're on the fourth quarter call. So I'm probably not a very good guesser in this particular case. But it is progressing, and it's rather likely than not that it will happen.

Okay. And would you be looking to take a controlling stake in the venture?

If it will be possible. Currently, it's not possible due to the legislation, hence, we will be a minority. But the idea of the discussion and the idea of the principle agreement which we signed with the Vietnamese government is that we run the operations. And when the opportunity is there that we could find a path to control, we should be granted that opportunity. That is the idea of what we are discussing there.

And just lastly -- sorry about this, very last question. Systema just recently commented on their plans to go and expand in China on mobile business. What's your view on this? Can you comment? And do you think that would be an opportunity for your Company as well? Thank you very much.

When you talk about market of China, clearly, that's the Holy Grail for any mobile operator and, to the best of my knowledge, there are no opportunities there. And I visited China, I discussed it with the Regulator, I met with all the Chinese operators. Now when they discussed -- when they announced the structural changes in the industry it became a little bit clearer what's going to happen there. But I still don't see what are the opportunities there, unless there are some substantial changes or some things which we're not aware of.

So, from that perspective, if you look at the large market, yes, it is attractive. And, like in India, pricing in China is at a reasonably high level. India I would find very difficult to succeed at this stage. Even if the penetration is low, pricing of $0.02 to $0.01 per minute makes it prohibitively low cost, at least for our business model. So it will be a challenge actually for anybody who enters now. China will compose a different story, but I don't see how it is possible at the moment for us.

Thank you very much for your comments.

We'll take our next question from William Kirby with Nevsky Capital.

Hello. Thank you for breaking SG&A into sales and market and G&A expenses. How should we be thinking about sales and market for the rest of the year? It was 9% of sales in Q1 '08. Should we be expecting 10%, or nearer 11%, of sales in the future?

And also, if possible, could you give the split of SG&A in 2007 between those two categories, please?

To begin with, on the marketing piece, we said on previous calls that our overall targeted quarter of our spending on marketing is between 4% and 5% of revenue and, when you include costs related to dealers, somewhat below 10% in Russia and around 10% in the CIS. We'll continue to think that that's the right range for us going forward.

We'll have to re-look at that again as we fully absorb the consumer businesses of Golden and look at how that would affect our total. But from a mobile standpoint we would see it being the same, and not really escalating from this point. I would just note that often in the first quarter, because it's a lower revenue quarter because of seasonality, the amount that's spent on dealer commissions often will drive that to the upper end of the range. But that shouldn't be indicative of what's going to happen for the entire year.

Okay, thank you. And the 2007 split?

If you will send these questions by email, yes, we'll provide you with this.

Okay, brilliant. Thank you.

We'll take our next question from Olga Bystrova of Credit Suisse.

Yes, good evening, Olga Bystrova from Credit Suisse. Two questions from me. One is on the Fixed Line business. I was just -- I'm sure if I missed it and you've talked about it. But can you update on the progress of the Residential Broadband network rollout? What are your targets for household past for this year because I think the progress year to date is a little bit different from what you have been discussing, or talking about potentially, previously?

And the second question on the Fixed Line business is, given that you don't provide any more breakdown or numbers for Corporate contracts, could you elaborate quantitatively or qualitatively where do you stand from this point of view in the first quarter?

And the second question on the overall [conversion] business. Last time you've been saying that you have identified certain revenue synergies, but you weren't able to -- or weren't ready to elaborate more quantitatively on those. I was wondering if you could do this now. That would be very helpful. Thank you very much.

On the -- as far as the rollout is concerned, we are -- one, we have to take into account that the Q1 is the bad quarter for building fibers. It's when you cannot build fibers when the temperature drops below 10 degrees, so you always have a slowdown in the first quarter. What you then see is that in Q2 it usually picks up very fast, which is what we've seen now.

And, in fact, if we compare end of Q1 with where we are now, which is two months into -- two-thirds into the second quarter, we've built in the second quarter more -- to more buildings than we've done in Q4 than in Q2 together, so that probably gives you a bit of an idea. So, in total, we've done something like 680,000 flats in the second quarter up till now.

As far as targets for the end of the year are concerned, we have no particular targets for the end of the year. What we do have is potentially the expansion of what the original Triple 65 plan was, to do more cities, to go to more cities faster than we were originally planning to do. I'm not in a position to disclose what we plan to do and to how many buildings and how many cities we plan to go in Russia and in Ukraine, yet.

As far as Corporate customers is concerned, I will -- going through the data over here. If I look at number of clients, what do I have here? Total number of clients. I have them only broken out per category between more than 50,000 between apparently not being totaled up. But if you send me the question by email I will send you the tables over.

And the third part of the question was on FMC. I believe -- can you repeat that once?

Yes, well, thank you very much. I'll send you the question, first of all.

And then the second question was on the potential quantification of the revenue synergies, if you are ready to talk about it now. Because in the fourth quarter you have only made qualitative statements, so I was wondering if maybe you could talk a little bit more about it today.

Olga, I don't think that it would be our practice to give anticipative answers on the revenue. We described the nature where we'll be looking at but we certainly are not going to revert to guidance on that.

Okay, that's fine. Thank you very much.

We'll take our next question from Alex Kuznetsov from Renaissance Capital.

Yes, good evening. My first question would be on your Russian Mobile subscribers. You had -- I think April was the last month we saw the subscriber month. And, clearly, have a very worrying trend probably of subscriber outflows on a monthly basis which cannot be any more explained by a move to the three-month disconnection policies.

So the question is, first of all, do you think that could explain one of the reasons why, for instance, MTS's revenues in Q1 were strong in Russia, while yours -- again it's all relative, but yours fell and theirs went up?

And related to that question is that you said that you will obviously be switching on the marketing gear. Would you be addressing this issue specifically? If you will, again, is there any direction for you in terms of is it going to be more in terms of dealer subsidies? Or anything related to that will be very helpful.

And the second question, or rather a sub-question, is to Jean-Pierre, again, following up on the previous -- Olga's question who wanted to know a bit more on the outlook for the business and the corporate services and also the operators business for Golden Telecom.

The Q1 pretty much saw the continuation of the trends of 2007, i.e., the business seems to be going very strong. But we clearly see the competition increasing in this phase. Comstar has now got the long distance license and so on and so forth. So, basically, would you see this business growing at the same pace as it was until now? Or do you think these two business lines will slow down the growth going forward?

Also related to the same thing, I was wondering that, without giving specific targets on the FTTB, but again you -- out of your 500,000 plus subscribers, less than 10% comes from the regions that we would expect to pick up at some stage. So where do you see this inflection point? Where do you see these 50,000 subscribers are getting into really a meaningful number? Is it 2009? Is it more 2010? What's your gut feel here?

And the last one, I just wanted to find out what's happening with the TV and, namely, with the DVB-H license, which I remember you were testing already six months ago, but we haven't heard any update on that. So I was wondering whether this is all shelved or anything will be happening on this front as well. Thank you very much.

Alex, thank you for a lot of questions. Let me start with first one. On Russian subscribers, yes, we are on the level of 42m active subscribers for some period of time. And, as we explained, we were conservative in the beginning of the year and, right now, we want to step up our marketing pressure.

You need to understand that, in general, market is in saturation phase so it will not be some really big growth opportunities. However, we would like to increase some pressure and win this -- some part of remaining growth of active subscribers in Russia. And we have the plan for doing that, but mainly with the programs of simulating dealers or marketing action.

As far as the outlook of Golden is concerned, or what is Fixed business of VimpelCom today, I think on the previous conference call of Beeline we said that we would not give any forecasts on that. That sounded a little bit like what you did previously when I was still CEO of on Golden; ask the same question and getting no for it and asking it again in another format. The answer is still no, Alex.

Overall, what we've seen is that the revenues of Golden in Russia have grown with 61%. I believe that that is strongest quarter that we've ever had as far as top line growth is concerned. The B2B segment has grown with 45%, and that is notwithstanding the fact that we lost about $2m revenues which were in the past deferred and which are now no longer being recognized.

So we grow about two times the market rate. Wholesale we've grown 60% and Residential 300%. If we back that up, it is highly unlikely that in the Wholesale we're going to be able to keep growing with 60%. Logically speaking, with the market share that we have today, we should not be growing faster than the market.

But, on the contrary, then the Residential market, you've just seen that the B2B markets -- the B2C market, is still highly underserved. So I see no immediate reason why it would slow down, definitely not in absolute numbers over there.

As far as the B2B market is concerned, yes, Comstar has its operating license so they will undoubtedly recognize long distance revenues which in the past went to MPT, so that should increase the revenues quite substantially. But that does not necessarily mean that their market share increases. If we see where the biggest gains is in market share in the B2B market, as we have, that's really two-fold; the large Corporates that move into the regions when Comstar is not present. And the second one is the SME segment where Comstar is really the absolutely incumbent.

That's still the segment where they have 70%, 80% market share. And it's only now with the FTTB network being -- covering Moscow completely, that we finally have access to these customers. So that's -- without answering your question, it gives you a bit of flavor of where we are.

As far as the B2B customers in the regions is concerned, if we look today at how many buildings that cover in Moscow and how many are covered in the regions, including St. Petersburg at that moment, the total amount of buildings, so not flats, you have to multiply that by 105. What I cover today is about 22,000 buildings in Moscow. If I take St. Petersburg and the other regions together, that's about 16,000, 17,000 and the uptake in Moscow is today about eight times larger than it was -- than it is in the regions. And that simply has to do with timing.

We're seeing that in Moscow also, we see that the districts in Moscow. You set up a building; the first three to six months penetration is about 3% to 4%. In the next six to 12 months, penetration goes up from that original minus 5% to the 15%, 20% range. So I would expect as buildings come online in -- outside of Moscow that in the next 12 months that should start to see some meaningful numbers from the regions.

As far as the DVB-H license is concerned, I will leave that to Alexander.

We actually have now, when we acquired Golden (inaudible), we have now three sets of TV licenses. We have DVB-H license for Moscow and Moscow oblast, we have national DVB-T license and we have IPTV license. So we will becoming, undoubtedly, a major distribution platform, actually, in those technologies.

The technological solution is there and DVB-H is actually broadcasting now in the test regime. I even have a phone which shows TV of pretty good quality and a digital picture. And a key issue for both DVB-H and DVB-T is that the regulatory framework on how the broadcasting license should interact with the operator license isn't clear.

The regulatory framework is still in the realm of analog broadcasting where one broadcaster, one frequency, one channel. And when we're moving to multi-channel broadcasting that's a completely different story. So we're waiting actually for that clarity coming from the Regulator and then we will step-up the rollout and we'll start pushing the product actually to the consumers.

As far as IPTV is concerned, we've announced last week that we've signed a major contract with Microsoft and we will be pushing it quite actively all the customers of Corbina and Golden who subscribe to fiber.

And that product is no longer (inaudible). There's 5,000 active customers on it so the testing is done, the product works, the processes work, the pricing works. The only one -- the only thing that was missing to start actively selling was the contract and the license. So that's one that's out in a couple of weeks.

Could you share with us of the 5,000 subscribers what is roughly the pricing and the ARPU you're getting [out]?

I will send that by mail. I will get that back to you by mail, Alex.

Thanks a lot. Thank you.

We'll take out next question from Evgeny Golossnoy with Troika.

Yes, hi, good evening. I've got a couple of questions regarding your Broadband plans in the regions. Basically, you mentioned that at the present you see main competitor (inaudible) but, for example, the second-largest in this country provider of long distance channels, TransTelecom, has recently discussed its new strategy -- retail strategy. And they're saying they're planning to go very heavily into the last mile regions where they already operate.

They say we've got the channels all over the country so, basically, that no-one can beat us on tariffs and Broadband because we have channels. So our prices in the last mile can be very, very competitive. And they outline the amount of investment at roughly $1.5b over the next three years. So my questions are really how much, for example, you are planning to invest into the Broadband segment in the regions over the three-year horizon?

And do you see a threat in, for example -- do you see an advantage in having or not having own long distance channels?

And the follow-up question; what's the percentage roughly -- what's the percentage of channels that you own and the percentage of channels you rent from third parties? Because presumably in the past this has been a problem when the Golden Telecom went into the regions and you had to -- you saw the traffic rising, you had to rent channels from other parties, your margin dropped. So what's the situation here?

Let me start with TransTelecom. I've also read what TransTelecom has announced. If someone is prepared to invest $1.5b that's [to be] a major player. But then, on the other hand, in the past TransTelecom has also announced that they would invest in a federal transit network in a long distance license which, I believe, they got something like a year and a half ago, a little bit later than Golden.

Today, Golden has about 30% of the long distance traffic. And I'm not sure how much TransTelecom has today of long distance traffic, but it's definitely less than 3%. So, yes, if someone is prepared to invest that amount of money, then I assume that he wants to have some returns on it.

But if you look at the amount of investments you have to take into account that Golden and Beeline have been operating in the regions for a very, very long time. We have last miles in practically every city of the Russian Federation. We have either cable or microwave to a total of [50] 100,000 different points of presence. We have a commercial presence, a sales presence in all of these regions.

Building an organization like that, building a network like that costs you -- it's not a one or two year effort. That's an effort that has been by both companies going on for more than 15 years. Can you catch up on that even with investments of $1.5b? Maybe. Only the future will tell us.

But, that being said, we're also investing. We believe that we're probably two or three years ahead of any competitor and I see no reason why we would not keep that advantage in the future.

As far as the long distance channels is concerned, both Golden and Beeline in the past had already been constructing long distance fibers jointly. We are now stepping up that effort, of course.

We now already have fibers that go from Frankfurt in Germany all the way to [Katarinaburg]. We have [a ring] in Siberia and we're linking Katarinaburg with that ring in Siberia. So for all practical purposes you'll be able to go from Novosibirsk to Frankfurt on our own cables. There is a spur that goes all the way to Beijing across Kazakhstan. There is another line that goes from the north, from Stockholm, all the way to the south, to Krasnodar and [Sogi].

So is the network of TransTelecom more dense than ours? Yes. But is it more dense to the cities that you want to be? Today, maybe yes. In six months or in 12 months down the road, probably not. What the amount of channels is that we rent today that we have ourselves and that we rent, I cannot tell you that out of heart. It is -- it's definitely in kilometers order of magnitude 75%/25%, so, 75 owned, 25% rented. So the rented capacity is not that significant.

And in many cases the rented capacity is being used for back-up purposes, not as the main link. And if I tell you -- simply if you look at the map of Russia and I give you the [pin], we have a cable from north to south with every major city on it. We have another cable that goes all the way through the Ukraine to Novosibirsk. Then you pretty fast come to the conclusion that that is somewhere between two-thirds and 80% of the Russian -- of all the large Russian cities that sit on that cable. So we have our own long distance cables.

I just want to make one comment. Clearly, the competition will come. We're not fooling ourselves that we will have this market to our own. However, what matters here is speed, and that dictated the acquisition of Golden Telecom as the answer to do it fast.

And, actually, before that for Golden Telecom it dictated our acquisition of Corbina because doing it fast provides you with enormous first mover advantage. It's much, much stickier product than let's say mobile, hence, having the underlying infrastructure is only half the equation. And having the organization and the city rings and so on, that's another half which I guess many people so far are missing. They will be building it but it will take them time and, meanwhile, we'll try to take this time advantage and run as fast as we can.

Okay. Thank you.

Okay, your next question from [Benjamit Mullorin] with [Handelsbanken]. And, actually, we'll move on to [Tigor Bogart] with Ren Cap.

Hello, Tigor Bogart, Renaissance. I have one quick question regarding the Kazakhstan again. Despite the economic weakness, is it correct to see a lot of opportunities in Kazakhstan in Fixed Line business and perhaps in the Corporate business? And are you going to tackle these? Could you give us some guidance where you are in terms of market share right now in these two segments? And whether you'll be -- how fast you will be growing there in, I would say, one year and three years? Thank you.

The complication in Kazakhstan is that the law prohibits foreign owners -- foreign ownership of long distance operations, hence, it's more tricky to operate in there. However together with our partners with whom we operate in cartel, we're developing a quite extensive transport network infrastructure in Kazakhstan, and that will help us to capitalize on whatever offers we have. In Russia to transfer -- or in Ukraine for that matter -- to transfer them to Kazakhstan.

This is a bit lengthier a process, given that we are at a different age of development. In Ukraine, for example, we have very elaborate transport network and very strong already Golden [organization]. Golden organization in Kazakhstan is more at its initial phase of development and, therefore, positioned probably not as strong that we could really compete with Kaztelecom there.

But, certainly, we will be advancing on those FMT propositions and, certainly, we will be developing Broadband. But I guess it will come slightly at a later stage and we're not prepared yet to guide you more specifically what impact will it have.

Thank you.

Your next question will come from [Vladimir Postolovsky] with UBS.

Good afternoon. I'm sorry to go back to the revenue market share question, but it's just a -- quite an important one for us because we're simply used to you beating your competition in all the markets, and I guess that's one of the reasons why the market always rated you at a premium to other operators. So, from this point of view, you losing market share in Russia and Kazakhstan has a little bit worried them.

I would like you go a little bit further -- to explain a bit more as to why this thing is happening. And you sounded a bit surprised that MTS did so well in Q1. So why do you think that happened and what can you do?

And, in particular, do you think that the situation with Euroset and potential deals you (inaudible) with Euroset and therefore Euroset's clear predisposition towards MTS is a factor here and is likely to be a factor going forward? Thanks.

It's a very sharp question and not an easy one to answer in this format. Let me try to give you our current thinking. Essentially, we believe what happened that MTS invested quite heavily in acquiring market share in the dealership chains. And we've been reluctant to commit the same amount of money in doing that. So -- and you can clearly see this translating into EBITDA.

Would it entirely explain the increase? I don't think so. We've run our model and so on. It explains quite a bit, but not entirely. So probably there is something else in there because dealership network is not going to explain the drop in gross margin, for example. And we don't quite understand what influenced that.

To some extent, there is a price erosion which we were reluctant to exercise. And, again, as we vowed two years ago, I still repeat that we will be to some extent the custodian of that behavior and we're not going into a knee-jerk reaction. If we continue to bleed market share, of course, we will start protecting it. Actually, let me put it differently. We will protect market share and, depending how aggressive our protection measures should be, that aggressiveness will depend on the strengths of the attack and the behavior in the market.

Currently, we hope that it wouldn't be necessary to revert to more aggressive moves like it happened in Ukraine, and we can come to an equilibrium which is not far off the pricing levels which we're currently having on the market.

Coming back to the original question, what caused that and what surprised us. The surprise clearly came that the translation of the subscriber numbers into revenues was so close. We expected actually to be a little bit different, a little bit more diluted. And, therefore, we thought that actually our reserve behavior would yield a bit less of a loss in the market share.

However, what it proves that there are no new subscribers on the market but subscribers still coming to the retail and subscribers still getting to be converted. So at some point in time we will have a sliver of our subscriber base which will be migrating from operator to operator. And operators will increasingly compete for that subscriber market share shifting element.

And that's where I also believe we need to validate that it is a profitable business at competing in that. Otherwise, we can be in a vicious circle here, competing for the same subscribers and cannibalizing our healthy business and our healthy subscriber basis and eroding each other margins and, basically, not creating anything.

To me, this is clearly another illustration of prisoner's dilemma. And I know I'm sounding like a broken record with this prisoner's dilemma, but that's exactly what it is with the retail question that whether we should or should not go there. Until now, I think it was an excellent situation for the operators. We were not investing in the lower margin, high logistics, high complexity business and we were maintaining our presence towards the market at the adequate share.

Lately the shares started shifting and the retailers started manipulating the shares in a much more efficient way and therefore charging us quite a bit of money for that. If the next step of the revolution will happen and the retail will be absorbed by one of the operators, clearly, it will require retaliation. Because we cannot imagine that we will be continuing operating in the market where 10%, 15% of the retail outlets actually will be mono-brand while we have to compete in the rest.

So acquisition or real tender process around Euroset to me would signify the end of the multi-brand retail as we know it and it will be consolidation in the market.

I think it, on one hand, will bring again another low margin element to the business but, on the other hand, it can protect the margin in the longer run. Because it will force a different nature of competition which is closer to our current status; the way we compete by brand, by product, rather than by heavy discounts in the retail outlets. It will be a different challenge to build the traffic to your outlet and so on and make it visible. It's completely different business element, but we might see that evolution going forward.

As far as -- again what will happen in the near future, with or without Euroset being sold, I believe that we will see us still focusing on integrated business rather than mobile business. And, for us, it's more important to continue to grow on the top line as an integrated business and driving as we're using among ourselves when we discuss it and we're saying it's a pentathlon, right.

So to win that discipline you don't need to be a champion in each and every discipline, but you need to collect most points and that's exactly what we will try to do. And I personally believe that there is much more value creation for the shareholders than competing very heavily for the yellow jersey of the leader in the mobile environment.

Said all this, we will be monitoring it very, very carefully because currently I believe the industry is at some sort of a pivotal point. It might develop one way or the other way. It might be more healthy or less healthy, or it might require from us different steps and, therefore, I would be very careful at how I project the future developments based on just this quarter. I would look much more deeper in the underlying logic of the business.

It makes perfect sense what you're saying. Just one follow up. I don't even try to look too far strategically down the road. I'm just curious what Euroset -- and, actually, I don't believe that MTS will ever buy Euroset completely or consolidate it. But, clearly, there's some sort of a relationship being built there and maybe they're resolving their liquidity problems in one way or the other.

But it looks like if you go into a Euroset shop at the moment that all the MTS products are up front and MegaFon and VimpelCom maybe a little bit behind on the shelf. So, this particular situation, does it worry you? It's obviously one of the leading distributors in Russia. Is that the case, or is it just my unfortunate experience in a couple of outlets?

Your experience certainly was unfortunate but, unfortunately, it's very representative and it's true. And Euroset have proven to be quite efficient at managing the market share of those who pay for that market share. And they increase prices for that type of management dramatically during last 12 months and, therefore, we basically decided not to engage with them at that level of pricing. MTS did and, as a result, Euroset delivers on that sales and they, in a very focused fashion, managed this.

If there is no vertical integration of the retail into the operators, then the strategy would be actually to focus much more on creating additional channels. Yes, of course, we will compete in Euroset and in Svyaznoy and in Dixies in all those elements. But we also will be developing and we put quite a bit of effort thinking it through and preparing alternative channels which would allow us to increase our presence and be less dependent on big chains like this.

All right. Thanks very much.

And our final question will come from Anna Kurbatova with Unicredit.

Good evening. You mentioned that VimpelCom could refuse some CapEx projects in regions where Golden Telecom already has network capacity. Could you please update us with 2008 CapEx projection?

For 2008 in Russia, we assume that, together with Golden Telecom, we will invest 1.9b.

I would add to this that our intention is, where we have duplication of the CapEx and so on, we not necessarily reduce the pace because, as I said, the speed of the rollout in Broadband is an absolutely essential factor now. But we rather redirect this resource into doing for the same money but much more.

Sorry, recently you mentioned that the total CapEx budget for this year is 2.7b. Could you reiterate this?

Yes, 2.7 including CIS and Russia. And, in Russia specifically, 1.9.

Thank you. And two small questions to Jean-Pierre probably. How many IPTV subscribers you currently have at Corbina and Golden Telecom?

Exactly 5,000 up to the -- not 4,909 or not 5,001, but exactly absolutely 5,000. Because that was the test license that we had from Microsoft so we could only sell 5,000. So it's -- with the contract that we signed last week, as that is being implemented, we can go over it. But, today, it's probably the only moment in the lifetime of the IPTV project that at any moment of the day I will be able to tell you exactly how much it is; 5,000.

Thank you.

And, at this time, I'd like to hand the conference back to you Mr. Izosimov for closing comments.

Well, as usual, thank you very much for your attention and your questions. If you have more questions, please do not hesitate to contact us and we will be happy to give you all the necessary clarifications and explanations. So, with this, have a nice day and goodbye.

And that does conclude our conference. Again, thank you all for your participation. Please enjoy the rest of your day.